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Nissan Now Profiting From ZEV Credits Like Tesla Has

Jeff CobbSeptember 1, 2013

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California rules that mandate sales of all-electric or other zero emission vehicles (ZEVs) in proportion to automakers’ regular vehicles has proven a not insubstantial, if temporary, financial boon for Tesla, and now Nissan is getting in on the act.

Last week Nissan reportedly divulged it is selling its excess ZEV – also known as “green car” or “carbon” credits – derived from sales of its Leaf to other automakers who need them to comply with rules intended to push for 1.5 million ZEVs on California’s roads by 2025.

Details as to when Nissan began this, how much it has made, or to whom it has sold credits were not given, and the company has said this information is held in strict confidence by all parties involved.

In August, Nissan crossed a 75,000 global unit sales benchmark for its Leaf and sales have been up this year in markets including the U.S. The car was launched in December 2010 and Nissan’s sales tower over the Tesla Model S which began later in July 2012, but Tesla has otherwise been selling well even at double the price or more.

Being so small, and because it sells only electric cars, Tesla has been exempt from the ZEV credit requirements, but Nissan hasn’t because it sells a plethora of regular petrol burning vehicles.

As such, Tesla has until now has been in a unique position as it accrued up to seven ZEV credit points per Model S and sold them to the highest bidder. The price is set by supply and demand, and regulators who mandate ZEV credits set no guidelines on how much Tesla or another automaker may charge for these unique commodities created through legislation.

In the first half of this year, Tesla reported that 12 percent of its total revenues – $119 million – came just from selling ZEV credits created out of thin air under California Air Resources Board rules.

Now Nissan is in on it too. Will this effectively erode the market rate for ZEV credits Tesla has charged, and thus erode its profits somewhat?

No telling on that question, and Tesla CEO Elon Musk has in any case said he expects ZEV credit sales to decline in the third and fourth quarter and Tesla won’t be banking on them as it increase core profitability.

Unknown is what Nissan has to say on the subject, although clearly ZEV credit profits matter less to the Japanese giant than to the California start-up.

But potentially tens of millions in effectively found money can’t be inconsequential to either automaker as they aspire to proffer a minority segment car.

And more certain is that for all the criticism of EVs and their claimed viability, this inadvertent back-door profit does stand to improve the bottom line to a degree.

The Leaf is eligible for only three credits per car sold in the U.S. due to its smaller battery and lesser range, but Nissan is selling increasing numbers of the midsized EV.

Leaf and Model S sales are also propped up for now by another temporary benefit derived from legislation – the $7,500 federal tax credit to consumers in addition to any state incentives that may be available depending on the state.

For all intents and purposes, Tesla and Nissan are the only two big players in the pure EV market, if measured by sales volume. They appear to be reaping an additional reward for being bullish and pushing the hardest for mass adoption in the face of more conservative competitors.

But it is a race they face, not just against competitors due to come along stronger, but also against the clock to establish a firmer foothold for EVs and improve product offerings before various deliberate and inadvertent subsidies dry up.